Capital Regulatory News (CAPD)

Capital Drilling Limited

("Capital Drilling", the "Group" or the "Company")

Full Year Results

For the period ended 31 December 2016

Capital Drilling Limited (CAPD:LN), a leading drilling solutions company focused on emerging and developing markets, today announces its full year results for the period ended 31 December 2016.

FULL YEAR FINANCIAL RESULTS FOR THE PERIOD ENDED 31 DECEMBER 2016*

*All amounts are in USD unless otherwise stated

Financial Overview

· Revenue up 19% to $93.3 million (2015: $78.7 million)

· EBITDA up 30% to $13.1 million (2015: $10.1 million)

· EBIT up 69% to -$1.4 million (2015: -$4.5 million)

· Net Loss After Tax of $4.8 million (2015: a loss of $10.2 million)

· Net Operating Cash Flows of $9.8 million (2015: $22.1 million)

· Aggregated dividend of 4cps paid in 2016#

· Net Cash of $0.6 million (2015: $8.3 million)

· Declared final 2016 dividend of 1cps

# consisting of a final dividend for the year ended 31 December 2015 of 2.5c per share paid on 12 May 2016 and an interim dividend for the six month period ended 30 June 2016 of 1.5c per share paid on 14 October 2016.

Operational and Strategic Review

· Performed strongly on long-term production contracts:

- Acacia Mining's North Mara Gold Mine, Tanzania

- AngloGold Ashanti's Geita Gold Mine, Tanzania

- Centamin's Sukari Gold Mine, Egypt

· Awarded numerous exploration contracts:

- Aton Resources, Egypt: 1 diamond rig

- OreCorp Limited, Mauritania; 1 diamond rig

- Tanga Resources, Tanzania: 1 multi-purpose rig

- Barrick Gold, Chile: 1 reverse circulation rig

- Algold, Mauritania: 1 multi-purpose rig

- Nevsun Resources, Serbia: 4 deep hole exploration directional drilling rigs

- Ascom Mining, Ethiopia: 2 diamond rigs

- Resolute, Mali: 1 diamond rig

- Acacia Exploration Kenya Ltd, Kenya: 3 diamond rigs

- Mining Resources, Mauritania: 1 reverse circulation rig

- Thani Stratex, Egypt: 1 diamond rig

- Tilva (BVI) Inc. (a Rio Tinto/Nevsun Resources JV), Serbia: 2 diamond rigs

- Acacia Bulyanhulu, Tanzania: 1 diamond and 1 reverse circulation rig

- AngloGold Ashanti, Geita, Tanzania: 1 diamond underground rig (commenced January 2017)

Full year benefits of new exploration contracts expected during 2017

· Achievement of a number of world class safety milestones, including:

- Tanzania (Mwanza Support Facility) achieved 8 years LTI free in January 2016

- Mauritania (Tasiast Project) achieved 5 years LTI free in February 2016

- Botswana (Cupric Project) achieved 1 year LTI free in March 2016

- Tanzania (Geita Gold Mine) achieved 9 years LTI free in April 2016

· Mobilised 14 rigs into four new countries of operation (Mali, Kenya, Ethiopia and Serbia)

· Strong increasing on rig utilisation from 34% in January to 58% in December, with a yearly average utilisation of 45%.

· Purchased 6 new rigs, adding to the fleet's deep hole drilling capacity in addition to rig replacements for long term production contracts. Decommissioned 9 rigs, maintaining our ongoing focus on fleet management.

Management Update

As previously announced, Dewald van Tonder commenced as Chief Financial Officer (CFO) in November 2016. The Finance team was further enhanced with the appointment of Nataly Marchbank as Group Tax Manager, who brings extensive knowledge of the complex African tax environment.

Additionally, the realignment of the Executive Leadership Team and organisational structure was also completed in August 2016. Business units now focus on either exploration or production activities and are more closely aligned with clients' operational structures. This structure is expected to improve the Group's capability to deliver on the diverse requirements of clients in each phase to capitalise on current contracts and future growth opportunities.

Mark Parsons tendered his resignation as Chief Executive Officer in February 2017. Following this, Brian Rudd has taken responsibility for the Company's Exploration Division and Stuart Thompson has taken responsibility for the Production Division. These appointments reflect the delineation of these business units as outlined above.

Commenting on the results, Jamie Boyton [Executive Chairman] said:

"Capital Drilling saw a return to revenue growth in 2016 as the company benefitted from the improving market conditions, particularly in the gold sector. Our stringent cost control measures and focus on cash generation during the downturn enabled the Group to respond quickly to new opportunities as the upturn commenced.

As a result of the expansion in activity, our expenditure increased as we prepared the fleet for operations, mobilised into new operational countries and acquired new rigs to support existing contracts and maintain our young fleet. Our net cash balance reduced due to these investments, however, the expenditure is in line with the Group's growth strategy and is expected to provide improved revenue and earnings growth in the long term. Our rig utilisation has also increased accordingly, from 34% in January 2016 to 58% in December2016.

As a result of contracts awarded during 2016, we entered the new year in a substantially stronger position than the previous first quarter, having eight exploration contracts secured as opposed to three in January 2016. I am confident that with our recent realignment to meet the diverse needs of our exploration and production customers, together with our ability to offer a complete drilling service, Capital Drilling is in a solid position to continue the growth achieved last year and deliver a robust result in 2017."

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Results Conference Call

Capital Drilling will host a conference call on Thursday 16 March 2017 at 09:00hr (London, UK time) to update investors and analysts on its results. Participants may join the call by dialling one of the following numbers, approximately 10 minutes before the start of the call. Participants may also wish to download the 2016 Results Presentation which is available by clicking http://www.capdrill.com/investors/presentations

Dial in (UK): 0330 336 6013

For a list if international toll-free dial ins click here 

ID Number: 724973

For further information, please visit Capital Drilling's website www.capdrill.com or contact:

Capital Drilling Limited +230 464 3250

Jamie Boyton, Executive Chairman investor@capdrill.com

Dewald van Tonder, Chief Financial Officer

finnCap Ltd +44 20 7220 0500

Christopher Raggett, Corporate Finance

Emily Morris/Simon Johnson, Corporate Broking

Tamesis Partners LLP +44 20 3882 2868

Charlie Bendon

Richard Greenfield

Buchanan +44 20 7466 5000

Bobby Morse capitaldrilling@buchanan.uk.com

Gemma Mostyn-Owen

About Capital Drilling

Capital Drilling provides specialised drilling services to mineral exploration and mining companies in emerging and developing markets, for exploration, development and production stage projects. The Company currently owns and operates a fleet of 93 drilling rigs with established operations in Botswana, Chile, Egypt, Ethiopia, Kenya, Mali, Mauritania, Serbia and Tanzania. The Group's corporate headquarters is in Mauritius.

CHAIRMAN'S STATEMENT

Following a prolonged downturn in the commodities markets over the previous five years, Capital Drilling entered 2016 in excellent financial and operational health, having restructured its business, focusing on the conversion of revenues to cash and strengthening its balance sheet. The drilling services market reached its cyclical low point in 1Q 2016, and we substantially improved our order book during the year as conditions in our key markets progressively improved, with confidence returning to equity markets in the second quarter onwards, driven initially by increased capital raising activity in gold and specialty metal commodities. The base metals markets also improved, with a broader rally following the impact of the United States elections in late 2016.

The increase in capital markets activity and the appreciation of most metal prices drove an uplift in demand for exploration and delineation drilling, with Capital Drilling initially being awarded a number of short duration gold exploration contracts, which were subsequently renewed and extended as the year progressed. Additionally, tendering activity among mid-tier mining groups for delineation contracts increased, a dynamic that had been absent from the market for a number of years. Capital Drilling was successful in the awarding of multi-rig delineation contracts with Resolute Mining (Mali), Acacia Mining (Kenya) and Nevsun Resources (Serbia), all of which continue into the current year.

The impact of increased activity saw utilisation improve from a low of 34% in the month of January to 58% in the month of December, the highest swing in the Company's history. Revenue increased by 19% to $93.3m for the full year, with H2 driving the uplift, increasing by 24% over H1. The commencement of blast hole drilling services at Acacia Mining's North Mara Gold Mine in December 2015 provided an important contribution to this growth, along with a number of exploration and delineation contracts adding greater client diversification to the portfolio.

Please follow link to view Figure 1: RIG UTILISATION

http://www.rns-pdf.londonstockexchange.com/rns/6030Z_-2017-3-15.pdf 

Please follow link to view Figure 2: REVENUEhttp://www.rns-pdf.londonstockexchange.com/rns/6030Z_-2017-3-15.pdf

OPERATIONAL UPDATE

The Group's long term production contracts, which contributed a combined 75% of Group revenue in 2016, continue to provide a stable revenue base and performed strongly during 2016. In addition to the long-term contracts at the Geita Gold Mine in Tanzania and the Sukari Gold Mine in Egypt, Capital Drilling commenced blast hole drilling services at Acacia Mining's North Mara Gold Mine, adding to our existing grade control drilling operations. With the Group's production fleet operating at full capacity, additional capital expenditure was incurred to support the existing operations at Sukari and North Mara. Three new rigs were acquired as part of the Company's fleet replacement policy, as the Group maintains its focus on operating one of the youngest fleets in the drilling industry.

In response to the rapid improvement in market conditions for exploration and delineation drilling through 2016, the Group recommissioned 31 rigs and completed a further 4 rebuilds during the year. In addition, Capital Drilling mobilised into four new countries of operation, which included Ethiopia, Kenya, Mali and Serbia. The Group's financial performance reflected additional expenditure associated with establishing our infrastructure in these new markets, increased rig activity and the purchase of three new diamond rigs for Serbia. Mobilisation costs related to the commencing of operations in new countries, including freight and custom duties, impacted profitability and cash flow, particularly in H2 2016, though this trend is expected to reverse as the assets generate free cash flow during 2017 and beyond.

Capital Drilling's activities traditionally lie within the exploration and delineation drilling markets. Improving market conditions, together with recent structural changes and the Company's industry leading capabilities and rig capacity, will improve speed to market and place the Company in a strong position to leverage additional opportunities presented by the ongoing cyclical upturn.

Despite higher capital expenditure and the costs associated with refurbishing unutilised exploration rigs ahead of prospective new contract awards, the balance sheet remains strong, with the Group finishing 2016 with net cash of $0.6 million (and cash at hand of $12.7 million).

In line with the Group's solid financial and operating position the Board of Directors have declared a final dividend for the 2016 period of 1cps (US$1.35 million), payable on 19 May 2017. This represents a decrease on the final 2015 dividend, primarily driven by the improving market conditions which have contributed to higher capital expenditure requirements and working capital outflows, both of which are contributing to a stronger growth profile over 2017.

POST PERIOD MANAGEMENT UPDATE

Following the resignation of Mark Parsons, CEO, in February 2017, Capital Drilling has strengthened the structural changes implemented during 2016 with Brian Rudd taking responsibility for the Company's Exploration Division and Stuart Thompson taking responsibility for the Production Division. This new structure will allow Capital Drilling to meet the diverse needs of our existing clients and to harness the fast developing new contract opportunities more effectively than before.

On behalf of the Board and myself, I would like to thank Mark for his contribution during his tenure with our company. Under his leadership, we have seen Capital perform strongly through some challenging market conditions and the Company is well placed to capitalise on growth opportunities presented by the improving market conditions.

SAFETY

Safety is the Group's first priority and we expect visible safety leadership at all levels of our business, from the Executive Leadership Team to crews on site. We invest significantly in training programs to ensure our workforce are skilled and competent, and can identify and mitigate hazards in their workplace.

This strong safety culture has contributed to the Company achieving several world class safety milestones, during 2016 including:

· Geita Gold Mine, Tanzania achieved 9 years LTI Free in April 2016

· Mwanza Support facility, Tanzania achieved 8 years LTI Free in January 2016

· Tasiast Gold Mine, Mauritania achieved 5 years LTI Free in February 2016.

The key tracking measure for safety, specifically the AIFR, saw an increase in 2016 due to two LTI's in 4Q 2016, however 2016 represents another solid safety performance for the Group.

Please follow link to view Figure 3: PROGRESSIVE AIFR 2007-2016http://www.rns-pdf.londonstockexchange.com/rns/6030Z_-2017-3-15.pdf

OUTLOOK

The cyclical recovery, which commenced last year, reflect an improving market for drilling companies and the mining services sector more generally. Gold and base metal pricing remains strong, and increased activity in the capital markets has continued into 2017. Encouragingly, some of the major mining companies have allocated greater budget expenditure to exploration activity for this financial year and the tendering market conditions to improve.

The long-term production contracts held by the Company will continue to provide a stable revenue base and underpin revenue guidance for 2017, while the recent structural changes to our business, which better align our capabilities with our client's needs, are expected to benefit the Group as conditions in the exploration and delineation market continue to recover.

In addition to the internally focused growth expenditure and returns to shareholders, we have today announced a phased strategic investment of US$3.8 million to earn a 50% interest in private laboratory testing services company A2 Global Ventures Inc ("A2"). Together with A2 we see significant opportunities to realise synergies and support our customers through the cross selling of services and the sharing of infrastructure. Our investment will accelerate a significant growth programme for A2 with new labs in our core African market and other emerging markets.

I would like to take this opportunity to thank all of our employees, business partners, shareholders, our Board of Directors and other stakeholders for their continued support of our company.

Jamie Boyton

Executive Chairman

16 March 2017

CHIEF FINANCIAL OFFICER'S REVIEW

Overview

During 2016 revenues increased 19% to $93.3 million. This uplift in revenue was due to Capital Drilling's ability to respond quickly to new opportunities as a result of its prudent cost management throughout the downturn together with the full year revenue contribution by the North Mara production contract.

Capital Drilling has traditionally had a strong exposure to gold exploration, which saw a significant improvement during the year, evidenced by increased capital and equity raisings by junior mining companies, together with expanded brownfield exploration budgets.

In response to the improving market conditions, capital expenditure increased during the year. Six new rigs were purchased to maintain the young rig fleet and increase the deep hole directional drilling capability for new contracts in Serbia, while upgrades were completed on an additional 31 rigs and 4 rigs were rebuilt.

The increase in activity throughout the year also impacted working capital requirements, particularly costs associated with the mobilisation of rigs into new countries of operation.

This expenditure is aligned to the Company's growth strategy of maintaining fleet operational readiness and increasing geographical expansion, and resulted in a reduced net cash balance for the year. It was supported by the strong financial position which was consolidated during subdued market conditions during 2011 to 2015 and will deliver long term growth benefits in the future.

Statement of Comprehensive Income

Table 1: Statement of Comprehensive Income (Summary)

Revenue increased by 19% to $93.3 million (2015: $78.7 million), with the North Mara production contract, which commenced in December 2015, delivering the greatest contribution to the increase, while revenue from exploration operations increased by 16%.

Rig utilisation for the year was 45% (2015: 34%) on an average fleet size of 94 (2015: 97). Average revenue per operating rig (ARPOR) reduced to $177,000 (2015: $188,000) due to the intermittent nature of exploration drilling.

Despite the increase in revenue, the statement of comprehensive income was negatively affected by the following charges, as disclosed in the Annual Financial Statements:

§ Non-cash loss on disposal of assets of $1.3 million, including $1 million relating to nine rigs decommissioned in 2016

§ Prior period tax expenses amounting to $1.2 million, including $848,613 relating to the deemed interest tax for the period 2012 to 2015. Associated interest and penalties totalling $567,637 was included under administrative expenses. Additionally, a $700,000 provision was raised for the ongoing tax dispute in Tanzania relating to payroll tax for the financial periods 2009 to 2015. This amount was also included under administrative expenses with additional disclosure in note 13 to the Condensed Annual Financial Statements.

Earnings before interest, tax, depreciation and amortisation ("EBITDA"), amounted to $13.1 million delivering a gross margin of 14% (2015: $10.1 million or 12.8%), while the net loss for the year reduced to $4.8 million (2015: a loss of $10.2 million).

The loss per share for the year was 3.6 cents (2015: 7.6 cents). The weighted average number of ordinary shares used in the loss per share calculation was 134,828,877 (2014: 134,603,264).

Statement of Financial Position

Table 2: Statement of Financial Position (Summary)

As at 31 December 2016, shareholders' equity reduced by 13%. The Group distributed a dividend of $5.4 million to the shareholders and recorded a net loss after tax of $4.8 million, with $15.3 million non-cash related expenses contributing to the loss for the reporting period. Despite the net loss for the year the Statement of Financial Position remains strong.

The total rig fleet size at the end of 2016 was 92 drill rigs (2015: 94 drill rigs). Improved market conditions required an increase in capital expenditure of $4.9 million, to $12.8 million (2015: $7.9 million). In order to respond to new opportunities, 31 rigs were recommissioned and 4 rig rebuilds were completed to ensure operational readiness. Additionally, three replacement production drill rigs were acquired, one for the North Mara production contract, while two were acquired for the long-term Sukari production contract. The Group also increased its deep hole directional drilling capability by acquiring three additional exploration drill rigs for contracts in Serbia.

Overall property, plant and equipment reduced from $49.1 million in 2015 to $45.1 million in 2016. This was a result of the combined depreciation charge of $14.5 million (2015: $14.6 million) and net book value of assets disposed of $2.3 million being higher than total capital expenditure of $12.8 million.

Current assets increased to $54.8 million at 31 December 2016 (2015: $45.7 million). Trade receivables increased by $6.5 million, mainly due to additional drilling activity in the last quarter of 2016. Fourth quarter revenue of $27.8 million was the highest in 24 months, with the Group continuing to achieve quarterly revenue growth throughout most of that period, with the exception of Q4 2015 ($18.9 million). The increase in current assets was impacted by the quarterly revenue increase of $8.9 million and no change in debtor days. Inventory increased by $1.8 million to $19.4 million in 2016. (2015: $17.6 million).

Non-current liabilities consisted of a revolving credit facility ("RCF") provided by Standard Bank (Mauritius) Limited. During the year, the Group utilised an additional $7 million of the RCF primarily to finance the increased capital spend of $4.9 million and the increase in working capital requirements of $11.3 million. The Group was fully compliant with all debt covenants throughout the year.

Current liabilities consisted of trade and other payables, $18.4 million (2015: $12.2 million) and tax liabilities of $3.3 million (2015: $1.2 million). The year-on-year increase for trade and other payables is largely due to the acquisition of three drill rigs in December 2016 and the settlement of part of the purchase price in 2017, in line with the contractual terms. Tax liabilities increased by $2.1 million due to prior period tax expenses as outlined above.

Table 3: Statement of changes in equity (Summary)

Statement of Cash Flows

Table 4: Statement of Cash Flows (Summary)

Table 5: Reconciliation of net cash (debt) position

Net cash generated from operating activities was $9.9 million (2015: $22.1 million) with the operating cash margin significantly lower than 2015. The EBITDA result was $13.1 million (2015: $10.1 million). After adjusting for non-cash charges to the Statement of Other Comprehensive Income, operating cash flows before working capital changes amounted to $14.9 million (2015: $16.8 million).

The increase in activity throughout the year significantly impacted working capital requirements, particularly costs associated with the Company's entry into four new countries. Net Working capital increased with $11.3 million, resulting in a net cash outflow of $2.5 million (2015: $8.8 million inflow).

The capital expenditure increase of $4.9 million was driven by the Group's strategy of maintaining fleet operational readiness, which is expected to deliver long term growth benefits. Capital expenditure increased from $7.9 million in 2015 to $12.8 million in 2016 as a result.

Increased financing requirements of $7 million were utilised for the increased cash outflows for capital spend and working capital requirements.

The group reported a net cash position of $0.6 million at 31 December 2016. The reduced net cash is attributed to the higher working capital and capital expenditure requirements.

Critical Accounting Policies

The Financial Statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. The principal accounting standards are set out in the Group's financial statements.

The Financial Statements have been prepared on the historical cost basis and are presented in US dollars, given the Group's transactions are primarily denominated in US dollars.

Property, Plant and Equipment

The Group depreciates all fixed assets over their estimated useful lives, less any pre-agreed salvage value. The carrying value of fixed assets are reviewed annually or more frequently if a triggering event occurs.

Principal Risks and Uncertainties

The Group operates in environments that pose various risks and uncertainties. Aside from the generic risks that face all businesses, the Group's business, financial condition or results of operations could be materially and adversely affected by any of the risks described below.

These risks should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties nor are they listed in order of magnitude or probability. Additional risks and uncertainties that are not presently known to the Directors, or which they currently deem immaterial, may also have an adverse effect on the Group's operating results, financial condition and prospects.

The principal risks associated with the business are:

Viability Statement

The activities of the Group, together with the factors likely to affect its future development, performance, the financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the pages 17 to 31. The Directors have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. These risks and the ways they are being managed and mitigated by a wide range of actions are summarised on pages 12 to 14.

Taking account of the Group's position and principal risks, the Directors assessed the prospects of the Group by reviewing and discussing the annual forecast, the three-year strategic plan and the Group risk framework. Throughout the year the Directors review and discuss the potential impact of each principal risk as well as the risk impact of any major events or transactions. A three-year period is considered appropriate for this assessment because:

• it is the period covered by the strategic plan; and

• it enables a high level of confidence, even in extreme adverse events, due to a number of factors such as:

- the Group has considerable financial resources together with established business relationships with major, mid-tier and junior mining houses and suppliers in countries throughout the world;

- high cash generation by the Group's operations;

- low level of gearing and availability of unutilised facilities with the Group's bankers;

- flexibility of cash outflows including capital expenditure and dividend payments; and

- the Group's long term contracts, and equipment availability and diverse geographic operations.

Based on the results of this analysis, the Directors believe that the Group is well placed to manage its business risks successfully as the market conditions continue to improve. The Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.

Going Concern Basis

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and this Chief Financial Officer's Review. The financial position of the Group, its cash flows and liquidity position are also described in pages 17 to 31 of the attached condensed financial statements.

The Group has borrowings and a debt facility which, together with its clients' receipts, fund its day to day working capital requirements. The Group's forecasts and projections, taking into account potential changes in its performance, show that the Group should be able to operate within the level of its capital structure, current facilities and related covenants. The directors have reviewed the overall Group strategy, the 2017 budget, considered the assumptions contained in the budget and reviewed the critical risks which may impact the Group's performance.

After making such enquiries, the directors believe that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the annual financial statements.

Financial information

The Listing Rules of the UK Listing Authority (LR 9.7A.1) require that preliminary unaudited statements of annual results must be agreed with the listed company's auditor prior to publication, even though an audit opinion has not yet been issued. In addition, the Listing Rules require such statements to give details of the nature of any likely modification that may be contained in the auditor's report to be included with the annual report and accounts. Capital Drilling Limited confirms that it has agreed this preliminary statement of annual results with Deloitte & Touche South Africa and that the Board of Directors has not been made aware of any modification to the auditor's report required to be included with the annual report and accounts for the year ended 31 December 2016.

Responsibility Statement

The Directors confirm to the best of their knowledge that the financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and give a true and accurate reflection of the operating result, cash position and Statement of Financial Position at 31 December 2016. The Directors further confirm that to the best of their knowledge that the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.

Cautionary Statement

This Business Review, which comprises the Chairman's Statement and Chief Financial Officer's Review, has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed.

The Business Review contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

By order of the Board

Dewald van Tonder

Chief Financial Officer

16 March 2017